World Bank slashes SA's growth forecast to 2,5%

by MARIAM ISA,
August 08 2012, 08:35

MARIAM ISA

World Bank slashes SA's growth forecast to 2,5%

THE World Bank has revised its growth forecast for South Africa this year down to 2,5% from a 3,1% estimate in November, citing the economic slowdown in Europe and China, the country's two main export destinations.

In a report on South Africa, the World Bank said it expected growth to quicken to 3,2% next year and 3,5% in 2014, assuming there is a gradual pickup in global demand.

The World Bank's forecasts are well below the latest estimates from the Reserve Bank, which sees the economy expanding by 2,7% this year, 3,8% next year and 4,1% in 2014.

The Bank published its forecasts last week when it unexpectedly lowered its key repo rate by half a percentage point to 5%, saying the step should help shield South Africa from negative global developments.

The World Bank said bottlenecks in electricity supply would be an important constraint on a faster pickup in growth as it was "already rubbing against peak demand and will continue to do so until fresh large-scale generation capacity comes onboard".

Consumer spending would continue to be an important driver of growth and would continue to be supported by robust wage increases, historically low interest rates and expanded access to unsecured credit, the World Bank said.

"Persistent high unemployment, elevated consumer debt, and stable or declining housing prices will put a check on the expansion in consumer spending," it said.

It also predicted private investment would moderate this year due to the fragile domestic outlook, deteriorating business conditions, excess capacity in the manufacturing sector and weak external demand.

This would be offset only partly by capital spending by the government and public corporations, the World Bank said.

It warned that there were "downside risks" to growth linked to how Europe's sovereign debt crisis unfolds. Lower commodity prices posed another threat.

"Of developing countries, South Africa would be among the 10 countries to be hit the most by (a) drop in commodity prices. Indeed, simulation results show gross domestic product growth to fall by some 1,7 percentage points," the World Bank said.

THE World Bank has revised its growth forecast for South Africa this year down to 2,5% from a 3,1% estimate in November, citing the economic slowdown in Europe and China, the country's two main export destinations.

In a report on South Africa, the World Bank said it expected growth to quicken to 3,2% next year and 3,5% in 2014, assuming there is a gradual pickup in global demand.

The World Bank's forecasts are well below the latest estimates from the Reserve Bank, which sees the economy expanding by 2,7% this year, 3,8% next year and 4,1% in 2014.

The Bank published its forecasts last week when it unexpectedly lowered its key repo rate by half a percentage point to 5%, saying the step should help shield South Africa from negative global developments.

The World Bank said bottlenecks in electricity supply would be an important constraint on a faster pickup in growth as it was "already rubbing against peak demand and will continue to do so until fresh large-scale generation capacity comes onboard".

Consumer spending would continue to be an important driver of growth and would continue to be supported by robust wage increases, historically low interest rates and expanded access to unsecured credit, the World Bank said.

"Persistent high unemployment, elevated consumer debt, and stable or declining housing prices will put a check on the expansion in consumer spending," it said.

It also predicted private investment would moderate this year due to the fragile domestic outlook, deteriorating business conditions, excess capacity in the manufacturing sector and weak external demand.

This would be offset only partly by capital spending by the government and public corporations, the World Bank said.

It warned that there were "downside risks" to growth linked to how Europe's sovereign debt crisis unfolds. Lower commodity prices posed another threat.

"Of developing countries, South Africa would be among the 10 countries to be hit the most by (a) drop in commodity prices. Indeed, simulation results show gross domestic product growth to fall by some 1,7 percentage points," the World Bank said.

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